BY:Finance, Mining and Sustainability
…exploring sound investment decision processes...
United Nations Environment ProgrammeMining Department • World Bank Group
Mining Minerals and Sustainable Development Project
2001 - 2002
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REPORTThis report, drafted by UNEP, provides an overview of the UNEP, World Bank, andMining Minerals & Sustainable Development (MMSD) initiative investigating the role offinancial institutions in improving the environment and social performance of the miningsector.
This Report and all the papers presented during the Workshop are available, in whole orin part on the following websites:
❖ Mineral Resources Forum (www.mineralresourcesforum.org)❖ The World Bank (www.worldbank.org/mining) and the IFC
(www.ifc.org/mining)❖ MMSD (www.iied.org/mmsd)
MMSD officials have provided detailed minutes of both the 2001 and 2002 Workshopson their website.
For more information please contact:
United Nations Environment ProgrammeDivision of Technology, Industry and EconomicsTour Mirabeau,39-43 quai André Citroën,75739 Paris cedex 15,FranceTel: +33 1 44 37 14 50
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The World Bank1818 M Street NWWashington, DC 20433USATel: +1 202 477 1234
The Mining, Minerals & Sustainable DevelopmentProject (2000 – 2002)London, United Kingdom
The International Finance Corporation (IFC)2121 Pennsylvania Avenue NWWashington, DC 20433USATel: +1 202 477 1234
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PREFACENothing brings change to company behaviour quite as swiftly as financial gain (or loss).The spate of recent mining accidents1 have started to impact the financial performance ofsome mining projects. Governments, multilateral agencies, and civil society includinglabour, indigenous groups, local and international NGO’s are demanding higher standardsfor economic, environmental and social performance of mining projects. These demandsmean that some mining companies sometimes experience delays in projectimplementation resulting in difficulties to recover invested funds. Such complicationsare noticed by the financial industry as portfolio and reputational risks are assessed,influencing access to capital and shareholder value.2
The January 2000 Baia Mare tailings dam accident in Romania caused ripples of activitythroughout Europe and around the world. As one of the follow-up initiatives, the UnitedNations Environment Programme (UNEP), the World Bank Mining Department (WBG),and the Mining, Minerals and Sustainable Development (MMSD) Project initiateddiscussions on the financial implications of these accidents and whether financial marketscould better reflect the range of risks - economic, financial, environmental and social - inthe cost of capital.
The dialogue on the inter-relationship of financing, mining and sustainability had fourobjectives:1. to support a better understanding amongst the finance community of issues raised by
the mining industry’s uneven performance with respect to sustainable development asthey relate to financial and reputational risk and shareholder value;
2. to examine what role, if any, the financial community could play to enhance themining industry’s performance (e.g. guidelines, standards, or similar criteria);
3. to examine mechanisms (reporting, rating, certification, monitoring) suitable toimprove overall industry performance, thereby reducing risk exposure for thefinancial community at large; and
4. to move toward a broader consensus on the evaluation of sustainability specific riskfactors in mining finance, and their application.
Following two scoping meetings held in Washington in early 2001 to refine the questionsabout the ‘role’ of financial institutions in sustainable mineral development, a Workshopwas held in Washington, in April 2001. The outcome of these discussions led MMSD tocontract research projects to: a) evaluate the business case for sustainable mineraldevelopment; b) look at experiences and lessons learnt with respect to governance aroundsuch issues as product certification; and c) evaluate the role of indicators andmanagement systems for measuring sustainability. The final phase of this partnershipwas a Workshop, held in Paris, in January 2002, to consider whether financial institutionshad access to all the critical information necessary for ascertaining the range of
1 4 in 1998; 1 in 1999; 12 in 2000 and 29 in 2001 (excluding those in China)2 Recent regulatory changes, such as in the UK where pension fund trustees must now state the extent towhich environmental, ethical and social matters are considered in their investment decisions (affectingmore than £800 billion), underline this trend.
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environmental and reputational risks and whether there is a business case forsustainability in mining.
This Report synthesizes this initiative. It is meant to emphasize the linkages betweenenvironmental and social liability and credit risk3 and to inform the on-going thinking asto how minerals development can contribute to sustainable development and what rolefinancial institutions could perhaps play.
3 Further information on Environment and Credit Risk is available from the UNEP Financial InstitutionsInitiative (www.unepfi.net)
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ACKNOWLEDGEMENTS
Particular thanks is offered to the following persons from the three organizations whoprovided their support and assistance:
UNEP: Fritz Balkau, Head, Production and Consumption BranchWanda Hoskin, Senior Programme Officer, MiningPaul Clements-Hunt, UNEP FI CoordinatorBarbara HuberToshi OzawaBrigitte SartreWesley MasseyElena Ciccozzi
The World Bank: James Bond, Director, Mining DepartmentPeter van der Veen, Manager, Mining DepartmentMonika Weber-Fahr, Senior Economist, Mining DepartmentAva AyrtonArlette FumiereAmelia WilliamsObinna Okoye
MMSD: Luke Danielson, Project DirectorFrank McShane, Coordinator of Stakeholder EngagementAndrea Steel
Moderators:April 2001 Ian Johnson, Vice President, Environmental and Social
Sustainability, WBGSue Ellen Lazarus, Director Syndications & InternationalSecurities, IFCNemat Shafik, Vice President, Private Sector Development &Infrastructure, WBGPeter Woicke, Managing Director & Executive Vice President,WBG
January 2002 Aidan Davy, Director, Corporate Services, International BusinessLeaders Forum/Prince of Wales Foundation
MMSD Researchers Alyson Warhurst, Professor, Warwick Business SchoolMarianne Grieg Gran, International Institute for Environment &DevelopmentRuth Nussbaum, ProForest
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Table of Contents
Preface…………………………………………………………………………………… 3
Acknowledgements……………………………………………………………………… 5
Overview of the Issues and Discussions…………………………………………………
- Introduction………………………………………………………………………….
- Financing…………………………………………………………………………….
- Mining……………………………………………………………………………….
- Sustainability………………………………………………………………………..
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Sustainability and Risk Management…………………………………………………… 11
The Value and Use of Standards and Agreement, Audits and Independent Verification.. 13
Discussion………………………………………………………………………………… 15
Future Challenges………………………………………………………………………… 16
APPENDICES1. Agenda, April 8-9, 2001 Workshop……………………………………………….
2. Agenda, January 14-15, 2002 Conference…………………………………………
3. List of all Participants……………………………………………………………..
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FINANCE, MINING & SUSTAINABILITY
OVERVIEW OF ISSUES AND DISCUSSIONS
Introduction:Mining by its very nature is financially expensive,4 environmentally invasive and sociallyintrusive, yet many countries have successfully managed to convert their mineralendowment into national wealth providing the country with the economic means toaddress its environmental problems and social aspirations.
Recently, the mining industry as been experiencing a spate of accidents, intense socialconflicts and political debate, in both developed and developing countries which havefocussed attention not only on the mining industry but on its financiers, investors, lendersand insurers as the costs of mitigating the environmental and social damage can beenormous.5
FinancingThe financing of mining and minerals projects6 is not only important, but is increasinglyunder scrutiny regardless whether it be debt or equity financing. All financialinvolvement carries risk and it is the financial institution’s skill in identifying andquantifying the different levels of risk that separates good decisions from bad ones.Environmental, social and increasingly reputational risks are just a few of the many risksto be assessed each time a financial institution gets involved in a business. From thispoint of view, risks can be characterized in three ways:
� Direct RiskAs countries tighten their environmental regulations and public concern about themining industry grows, pressures increase on companies to minimize theirenvironmental impacts and pay greater heed to local social issues. This may increasecompanies’ capital and operating costs in order to comply with increasedenvironmental regulations and social expectations. This can have an impact on cash-flow and profitability, a borrower’s ability to meet loan repayments and the value ofthe entire operation. It is therefore, important to thoroughly assess environmentalperformance as part of the normal credit appraisal process.
� Indirect RiskLegislation differs from country to country but many adopt the ‘polluter pays’principle to pollution incidents. Financiers are increasingly concerned to avoid beingplaced in positions where they might be considered directly responsible for thepolluting actions of their clients, in this case mining companies. Otherwise, in thecase of a pollution incident, financial entities may find that not only have they lost thevalue of their original involvement in a particular project, but they may find
4 The Antamina zinc copper mine in Peru has a projected cost of US$2.27billion.5 The estimated total of direct and indirect costs to Boliden of the Los Frailes tailings dam accident in Spainin 1998 is US$42.5 million.6 The Role of Financial Institutions in Sustainable Mineral Development, UNEP/ Standard Bank London,2002
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themselves being forced to meet what may prove to be substantial clean-up costs oreven further liabilities.
� Reputational RiskFinancial institutions are under increasing scrutiny concerning their involvement in anumber of sectors, from governments, regulators, NGOs, the public and the media.Failure to give careful consideration to environmental impacts from projects financed,invested in or insured can result in negative publicity for both the respective companyand the financial institution.
When investors consider financing a mining project, they analyze the current state of theindustry (supply, demand and price factors), the company (cost profile, operatingefficiency, technology, labour factors, access to raw materials, reserve replacementstrategy, contingency and emergency planning, safety and environmental record,management) and the country where the project will be located (political risk). All theseaspects are important as mining projects can experience various difficulties. Forexample, the US$900 million Gamsberg zinc project in South Africa is on hold due topoor market conditions.7 The Windy Craggy copper zinc project in Canada waspermanently halted in 1993 due to environmental concerns and transboundary pressures.8
From an investment perspective,9 mining companies are relatively small. The MorganStanley Capital International World Index shows that mining companies constitute 0.7%of the index’s total market capitalization (total of 32 companies only 8 of which areabove 0.02%). While traditional investment analysts normally take limited account ofenvironmental, social or political considerations, the trend towards socially responsibleinvesting (SRI) approaches is changing this. One influencing factor is the developmentof a company’s own environmental standard, whether or not there are stringent laws/regulations or, where they do exist, whether or not they are viably enforced. SRI ‘best inclass’ environmental performance considerations have been far reaching with proactivecompanies developing policies, programs and environmental management systems.Increased public reporting of quantitative environmental data (energy use, emissions anddischarges, etc.) would make it easier to quantify improvements and third partyverification would be useful. While environmental and social reporting has gone furtherin the mining sector compared with many other sectors, given the level of risks involved,there remains considerable room for improvement.
Mining:The global mining industry is dominated by some 10 large companies whose total marketcapitalization is US$92billion.10 And while minerals and metals products are importantfor a technological society, mining itself has a huge impact on surrounding communities,leaves a large environmental footprint and is controversial largely because of issuesrelated to:
7 See presentation by Simon Thompson (Anglo American), January 20028 ‘Windy Craggy Retrospective: Why It Failed’, www.sunshine.net/www/0/sn0004/windycraggy.html9 See presentation by Aslak Skancke (Storebrand), January 200210 From presentation by James Bond, this compares, in US$ with $241B for Wal-Mart, $262B forMicrosoft, $289B for Exxon Mobil and $469B for General Electric. Source: Business Week Global 1000,The MiningWeb.com and Yahoo Finance, April 2001
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• Economic rent – conflict over the division of risk and rewards, often leadingto/associated with corruption; and to the
• High external costs – negative impact on local communities where the poor usuallylive.
Mining is extremely risky.11 Even a proven geological reserve has no guarantee of beingsuccessfully developed given the legal and political requirements for environmental andsocial impact assessments, pre-operating expenditures, borrowing costs and commodityprices (mining companies are essentially price-takers in the marketplace).
The financial realities of mining also show that mining is not very profitable.Reasons include the fact that only a small proportion of exploration activity leads to minedevelopment. Mining is a cyclical activity and metal prices, in real terms have beenfalling for a number of years in spite of increased demands on mining companies forimproved environmental and social safeguards (figure 1).
11 See presentations by Phillip Crowson (Consultant) and Keith Brewer (Government of Canada), January2002
Metal Prices 1971-2000
050
100150200250300350400
1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001
Indexes: 1970=100
Nominal Real Linear (Real)
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Evidence also indicates that the rate of return in base metal mining has fallen far short ofthe yield on US government bonds over the recent business cycle (figure 2).
However, in spite of these facts, the economic realities of mining are that projects resultin creation of employment and economic rent that is paid to governments for them toreinvest in further developing their human and physical capital. This reinvestmentcreates improvements in living standards today which in turn, provides the means for abetter future.
Mining can create genuine wealth from what otherwise is sterile rock. However, for anymining project to be truly economic, including being profitable for the company and itsstakeholders, all costs including cash costs of operations, mine closure and rehabilitation,taxes and other important but less tangible costs related to the environment and socialaspirations of different regions, need to be covered.
The environmental realities of mining mean significant expenditures to mitigate manyforms of air and water pollution, significant waste, a large environmental footprint andlegacy issues. Mineral development today means not only taking an ecosystem approachwhere development occurs but realizing that some areas, known as biodiversity hotspotsand/or world heritage areas, are off-limits even for exploration.
The social realities of mining mean that mining companies frequently provide the localinfrastructure which can include education and health facilities. Companies sometimestake the place of the central government meaning that local communities increasinglylook for tangible benefits from the nearby resource development.
Although references to ‘the mining industry’ imply homogeneity, in fact it is nothomogenous. The industry is made up of very large, well capitalized companies as wellas medium and small companies; public companies which operate for profit and state-owned companies which are not always profitable. Some companies operate rich orebodies while others have marginal operations. All need capital. Therefore, onefundamental question is what information do financial institutions and financial marketsneed to properly assess the risks associated with any project so as to sufficientlyincorporate those risks into their financial costs? As there is the perception thatenvironmental issues are immaterial to profitability whatever ‘business case’ there is will
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also reflect the regulatory system, especially those regulations that apply to disclosure ofinformation as these provide the linkage.12
Finally, what of the future? Although there is no shortage of minerals, we do not knowwhat the future requirements will be either in terms of the metals we now use or others.Just as today’s need for minerals and metals is different from the past, so the future isexpected to be different from the present including the technology used. All thesecomponents have inherent cost and price implications. In addition, there remainssignificant technical scope to lower costs and raise the productivity of the minerals wepresently use over the coming decades.
Sustainability:The most commonly accepted definition of sustainable development is ‘development thatmeets the needs of the present without compromising the ability of future generations tomeet their own needs.13 What does this mean and what does this mean for the mineralsand metals industry?14 Development incorporates a nations ability to meet its economic,environmental and social aspirations. It embraces the notion of inter- and intra-generational equity. It recognizes the Agenda 21 principles of pollution prevention,polluter pays and precaution. Sustainable minerals development means a life cycleapproach to products starting with exploration to find ore bodies, to materials extraction,through production, fabrication, re-use and recycling. It means development that iseconomically viable, financially profitable, environmentally sensitive and sociallyresponsible. But more than that, sustainable minerals development is about developmentand mining’s contribution to economic development where it occurs. Sustainabilityissues are local. They involve different issues, in different regions, and in differentcountries. For example, in South Africa, migrant labour, rural and local economicdevelopment, the need for front-loaded mine closure plans, black empowerment, earlywarning systems on the environment, places to work and live are basic issues15 and mustbe factored into project development equations.
SUSTAINABILITY AND RISK MANAGEMENT -WHAT DOES IT MEAN FOR MINING?
The 2001 Workshop discussed whether ‘sustainability’ is just a different word for riskmanagement - for thoroughly assessing each of the above three components. Discussionsconcluded that:
� Although mining has big negative impacts where it occurs, it can also have significantpositive benefits and, in fact it must make a positive contribution to sustainabledevelopment.
12 ‘To be efficient, markets need reliable information. Enron shows the extent to which they are not gettingit’. Special report: The Trouble with Accounting, The Economist, February 9, 2002, p 61ff13 World Commission on Environment and Development, Our Common Future, Oxford University Press,1987, p.4314 One comment made on the evaluation was that there was no attempt to define ‘sustainability’ for themining industry.15 Comments by South African Minister of Mines and Energy, Phumzile Mlambo Ngcuka, April 2001
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� Sustainability is not only about environmental issues but about those in nearbycommunities.
� Sustainability is a local issue.� The causal link between sustainability and financial performance is tenuous and most
likely reflects the quality of a mine’s management.� Understanding risk is key.� There is an information deficit. In particular, a much better understanding of risk and
sustainability is needed at the industry, company and specific investment level.� There is significant optimism about the financial community’s interest and ability to
address sustainability in the mining industry.� The conditions under which the mining industry operates is changing.� The mineral and financial sectors are realizing that reputational risk carries with it
economic risk and on-going mining accidents have both reputational and financialrisk elements.
� Environmental screening tools need to be used more in due diligence procedures.� Financial institutions need to respond and adapt to their customers needs which
includes addressing sustainability issues.� More research is needed to address five questions.
i. Metrics: what systems are in place to measure sustainability performance and whatevidence is there that they are measuring what we want to know?
ii. Dividends: is there evidence that good performance produces real dividends? If so,can this be quantified? What explains it? Is sustainability a surrogate for goodmanagement or are their other factors?
iii. Information: what information needs to be in the public domain? iv. Structuring a process: who needs to participate in standard setting to ensure that the
process is equitable and transparent? v. What are the implications for different scales of operation in addressing
sustainability?
MMSD commissioned analysis of the above questions.16 UNEP commissioned aReport17 to assist financial institutions and project analysts to better understand themineral development process from exploration, through development to mine closure andland reclamation, including articulating who is involved in financing each stage. Theresults of these investigations informed the on-going discussion which involves a rangeof views.
Some think that sustainability will only happen when the world and the countries wheremining takes place can afford it. Others think that mining should always contribute tosustainable development wherever it occurs. Some think that new indicators need to bedeveloped18 whereas others think that tools available in the rigorous application ofwelfare economics could be more extensively used as they provide a framework forproject analysis and sound decision making.19
16 Study results by Bass, Grieg-Gran, ProForest and Warhurst are available on the MMSD website at:www.iied.org/mmsd17 The Role of Financial Institutions in Sustainable Mineral Development, UNEP/ Standard Bank London,2002, ISBN: 92-807-2145-3. It is also available on the MRF at www.mineralresourcesforum.org18 See presentation by Alyson Warhurst, January 200219 See presentation by Keith Brewer (Government of Canada), January 2002
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There is a case to be made that projects should only be approved if, in both a private andsocial sense, there are no net losers following a rigourous benefit-cost analysis. Projectsmust be considered on a region-specific basis, and include all legitimate stakeholdersincluding governments who cannot abdicate their role in protecting private propertyrights, nor their role in setting emission levels that impact air and water, nor in enforcingregulations and setting compensation. Lenders need to be bold in evaluating the policyand regulatory context of any mining project they are considering. In addition, duediligence is not only undertaken by lenders, but needs to be done by all stakeholders sothat only proper projects can go ahead, with all others being shelved.
THE VALUE OF STANDARDS AND AGREEMENTS, AUDITSAND INDEPENDENT VERIFICATION
There are an increasing number of international standards (such as ISO 14000 and 14001and those of the WBG), voluntary codes (eg the new international Cyanide ManagementCode for the Gold Mining Industry), guidelines (International Commission on LargeDams Bulletins, Berlin II Guidelines, Mining Association of Canada Guidelines onTailings Dams and on mine closure), bilateral agreements, stock exchange listing rules inadditional to national laws and regulations, regardless of whether these are enforced ornot. But, in terms of financing, mining and sustainability, what is the value of thesedifferent instruments? How are these instruments used in practical terms? And whatconfidence, if any, can they provide financial institutions in making their decision vis-à-vis mining projects? There is a variety of viewpoints and opinions and several of theseare summarized below.
Standards, codes, and agreements could be useful to the lending community.20 However,these need to be specific, with measurable performance factors, actionable, responsibleand timely. Standards need to be able to allocate risk between stakeholders and thecertification must be worth having – that is, to be effective, standards must requiredemonstratable positive effects and must have teeth to deal with non-compliance. If thiscould be the case, these instruments would then be seen as important as it is against thesethat audits are done either as a statutory obligation, for financial institutions to limit riskand liability, for governments to ensure compliance, or for mining companies to obtainpermits.
There are lessons that can be learnt from other industry sectors (e.g. the chemicalindustry’s Responsible Care Programme which was developed following the Bhopalaccident some 20 years ago enabling the chemical industry to handle high liability; andthe forest and marine stewardship councils). Following the 2001 Workshop, one ofMMSD’s commissioned research was into lessons learnt from forest certification.Research showed that the principle lesson is the importance of defining a standard (aperformance level) that is acceptable to the target audience (company, industry, financialinstitutions, government, NGO’s or the knowledgeable public) so as to given themconfidence that a standard is being achieved. The best way to do this is to involve all key
20 See presentation by Milo Carver (Barclays Capital), January 2002
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stakeholders in the development process. The associated certification process verifiesthat the standard is being met and accreditation verifies that those carrying out thecertification are competent, thereby providing confidence in the results.21
Auditors 22 also believe that guidelines, such as those used by the WBG can be usefullyapplied in all mining projects. However, if standards become too specific, theirusefulness would be limited given the variety of mine site environments that exist. Infact, global objectives would be appropriate to ensure that environmental and socialimpacts would be minimized and liabilities understood. In addition, the competence ofauditors, currently self-regulated could become regulated if appropriate standards ofexperience were defined. In addition, the auditing of mines at the preproduction stage toensure global objectives should be statutory as should auditing during operation and postclosure periods to ensure compliance with permit conditions.
The importance of credibility in the results cannot be overstated as the marketing oferroneous information has serious financial implications. To address the problemsexposed by the 1997 Bre-X fraud, the Canadian regulations (securities commissions andthe Government of Canada) were amended to include the requirement that ‘all scientificand technical disclosure of mineral projects must be based on information provided by aQualified Person.23
Bankers24 view risk evaluation under two main headings: financial and non-financial.Financial institutions evaluate, measure and price risk. Banks invest in projects andindividuals sign off which makes them accountable. Standards would be helpful but theyare meaningless unless they are incorporated into an effective governance model.Sanctions are also necessary for non-compliance especially when recent studies25 showthat mine tailings dam failures are predominantly caused by inadequate management, notinadequate engineering.
Insurers have another point of view - ‘sustainability’ is really a question of the potentialfor large accidents and loss of profit. As the concept of ‘sustainability’ is not tangible,you cannot insure it. What is necessary is to unbundle sustainability into ‘catastrophe’and ‘accidents’ enabling insurers to focus on the specifics (probability) of events. Somethink however, that sustainability should be regarded as a risk management tool. In fact,some companies are looking at how to develop this as part of the underwriting process asit may be that ‘sustainability’ could be a proxy for management quality.
However, for anything to be useful, it needs to be measurable which leads to questions asto whether there are indicators that can be used as one of the range of tools that includeimpact assessments, sustainability reporting, auditing and verification.26 Whilesustainability indicators are relatively new, there is on-going research into mechanisms to
21 See presentation by Ruth Nussbaum, January 200222 See presentation by Mike Cambridge (Knight Piesold), January 200223 See presentation by Keith Brewer (Government of Canada), January 200224 See presentation by Milo Carver, (Barclays Capital), January 200225 Tailings Dams Risk of Dangerous Occurrences, Lessons learnt from practical experiences, Bulletin 121,ICOLD/UNEP 2001, ISBN 92-807-2053-8, ISSN 0534-829326 See presentation by Alyson Warhurst, January 2002
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integrate sustainable performance into mainstream corporate strategy through coherentmanagement frameworks. Indicators will need to be credible and meaningful and beincorporated into a framework in order to evaluate progress against relevant milestones.The ideal is to develop social accountants who will have parameters to work within andaudit against. Some consider that the linkage between sustainability performancemanagement, and sound investment decision-making is the industry’s social license tooperate. Public policy, national codes and standards provide the framework but reportingalone does not guarantee compliance. Managerial performance indicators may be usefulto help financial institutions see that a project will be efficiently and sustainablymanaged. How this plays out will need to be properly evaluated by a competent thirdparty. In addition, financial institutions and mining companies need to understand anduse the new environmental management accounting methods to reveal previously hiddenexpenses.
DISCUSSION AND CONCLUSIONS
Many participants felt that it is in the interest of all stakeholders to pro-actively assumegreater responsibility to enable mining to contribute towards sustainable development.For financial institutions this means: introducing environmental and social impact issuesin the analysis of project and company risk, possibility adjusting pricing, engaging moreclosely, and being prepared to walk away from marginal and negative net benefitprojects. Financial institutions would also benefit from clear, effective ‘codes’ or‘objectives’ to integrate sustainable development issues. However, there was consensusthat financial institutions should not be responsible for developing them. At the sametime however, financial institutions need to appreciate sustainable development issues,especially those already contained in environmental management systems.
On the other side, the mining industry needs to go ‘back to basics’ on benefit-costanalysis to ensure that all costs are included and that they have an effectivecommunication and marketing strategy to address public perception
The role of the Compliance Advisor/Ombudsman for the International FinanceCorporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), both partof the WBG, was explained. Reporting directly to the President of WBG, its mandate istwofold: first, to help the IFC and MIGA address – in a manner that is fair, objective andconstructive – complaints made by people who have been or may be affected by projectsin which the IFC and MIGA play a role; and, secondly, to enhance the social andenvironmental outcomes of these projects. The example of this office led to a discussionabout the extent to which mining companies and financial services institutions workingwith them, need to explore reputation and trust issues. Perhaps more needs to be done bythe mining industry in this area.
Most participants thought that the topic of financing, mining and sustainability was worthfurther investigation but were puzzled that no-one tried to define ‘sustainability’. Also inneed of further definition - what are the economic returns that will result from greaterinclusion of environmental and social factors in project analysis – that is, what is thebusiness case for sustainable mineral development?
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It was also clear from discussions that the finance/sustainability issue is complex, and thefinance community is diverse. However, the topic could benefit from continueddiscussion but with the active involvement of all stakeholders including: state-owned andprivate mining companies (as well as the multinationals who were involved in thesediscussions); all financial institutions including the mainstream investment communityand stock exchanges; export credit agencies and insurers.
A much clearer view is also needed of how sustainability is defined in relation to themining industry and what it means, in practical terms so as to be able to use a cleardefinition in separating good and less good performance.
There was also some discussion about the role of governments and the involvements ofcommunity interests.27 Dr. Keith Brewer articulated what the Canadian government sawas the optimal conditions for private sector mineral investment, namely where: the privatesector determines the pace of mineral development; governments play a complementaryrole; rules and regulations are known in advance; and a range of affected stakeholders areconsulted on proposed modifications. Government rules (policies and regulations) areimportant as they provide the framework to ensure the accuracy and integrity of theinformation disclosed by the mining companies.
Participants discussed whether ‘trust’ was the essential element defining the relationshipbetween government and local communities28 - is there a partnership? This may becomea greater reality: ‘The real economic value of a corporation increasingly comes not fromthe assets that is owns, or the employees that it supervises, but from the domain of trust ithas established”.29
Accountability, transparency and education are all needed at both the local and nationallevels. Governments should have the major responsibility, applied in a practical andrealistic way recognizing at the same time that governments also need help as there areno local government institutions in developing countries to assist in bringing sustainableprogrammes into local communities. It could also be helpful if local people knew whattaxes the mining companies were paying and what was going into their community.
FUTURE CHALLENGES
The challenges facing financial institutions, including the WBG was articulated by JamesBond who confirmed that they seek to encourage mining activities that are mindful of theenvironment and the social fabric of societies where they take place, and that contributeto the sustainable development of the areas and countries where they take place, ascommunities and governments turn tax revenues earned from these projects, as well asdownstream economic impacts and investments, into assets viable for the future.
In financing equity and debt for privately run mining operations, the Group’s privatesector arm, the IFC, is moving beyond a ‘minimum standard – hurdle approach’ to an 27 However, some comments received said that presentations on government and community interestsconfused the discussion and that it was not appropriate to involve them at this stage.28 See the presentation by Ligia Noronha, (TATA Energy Research Institute, India), January 200229 The Economist, ‘The Future of the Company’, December 22, 2001
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approach that seeks to encourage companies to play a positive and proactive role in thecommunities and regions where they invest. Given the dynamics of the mining sector,and in particular the specific risk-return profile associated with the industry’s ‘footprint’and reputation, this approach is considered to be the only one able to pay-off in themedium and long term.
In the past, financial markets have done a good job in identifying special project orcompany risks and appropriately pricing those risks so as to match those projects with thevery financial institutions willing and interested in taking specific risks. However, thisfunction as an ‘information intermediary’ has not included the environmental or socialrisk profiles that are increasingly apparent with mining projects. In fact, financialmarkets have failed to distinguish between projects which - because of the quality of‘sustainable management’ and thus their particular ‘sustainability performance’ – presentbetter or worse risks, thereby under-pricing bad risks and over-pricing good risks. Iffinancial markets were given the ability to distinguish these risks more realistically, betterinvestment decisions could be taken increasing the availability of financing for the wellrun projects in the mining sector.
The mining industry could improve the accuracy of its balance sheet and investmentproject calculations by adopting more rigorous costing (that is environmentalmanagement accounting) to keep track of actual costs of their waste management effortsincluding lost resources, mine closure and site rehabilitation. In addition, the relationshipbetween the mining industry and the community needs significant strengthening.
During the Workshop in 2001, Phumzile Mlambo-Ngcuka, South Africa’s Minister ofMines and Energy said that for many African countries, minerals are the only bankableand tradeable resource they have. Given that this is likely also a true statement for manyof the other one hundred and fifty plus mineral producing nations, it is important that alldirectly affected parties from industry, government and communities work in partnershipto address the key challenges confronting sustainable mineral development.
Finally, who will take the initiative in carrying discussions forward as MMSD will nolonger exist after May 2002? This is an issue that could perhaps be pursued by the WBGand UNEP’s financial institutions initiative.
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APPENDIX 1April 9, 2001 Agenda
Finance, Mining and SustainabilityConference
Washington, DC
Welcome• James Bond, Director, Mining Department, World Bank & IFC• Jacqueline Aloisi de Larderel, Director, Technology, Industry and Economics, UNEP• Jay Hair, Chair Assurance Group, MMSD
The Financial Sector, Mining and Sustainability – Outlook & ChallengesKey Notes
• Ross Beaty, Chairman & CEO, Pan American• Peter Seligmann, CEO, Conservation International• Phumzile Mlambo Ngcuka, Minister of Minerals and Energy, South Africa• James D Wolfensohn, President, World Bank Group
Cost and returns of "Sustainability" ?Panel Discussion
• Ray Evans, Executive Officer, WMC• Gerard Holden, MD, Barclays Capital• Shaun Mays, General Manager, WestPac Financial Services• Julian Morris, Director, IEA• Ligia Noronha, Fellow, Tata Energy Research Intitute
"Sustainability" – a different word for risk management? Panel Discussion• Bob Elton, CFO, Eldorado Gold• Utz Groetschel, Deputy Member of Executive Management , Munich Re• Daniel Hoffmann, Director, Swiss Re• Nick Dunlop, Property Practice Leader, Willis/NY• Steve D’Esposito, President, Mineral Policy Center
Better linkages for the financial sector – understanding mining operations' sustainabilityperformancePanel Discussion
• Claudette Cofta, Senior Director, American Chemical Council• Martin Whittacker, MD, Innovest• Clive Wicks, Senior Fellow, WWF• Mike Hodge, MD, Marsh Canada Ltd.• Guy Elliott, Head of Business Development, Rio Tinto
Conclusion: Where do we go from here?• James Bond, Director, Mining Department, World Bank & IFC• Wanda Hoskin, Senior Officer, Technology, Industry and Economics, UNEP• Luke Danielson, Director, MMSD
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APPENDIX 2January 14-15, 2002 Agenda
Finance, Mining & Sustainability:Exploring Sound Investment Decision Processes
Paris, France
14 January 2002
Moderator: Aidan Davy, Director, Corporate Services International Business Leaders Forum
09:00 - 09:30 Welcome & Official Opening- Jacqueline Aloisi de Larderel, Assistant Executive Director
United Nations Environment Programme (UNEP)- Mr James Bond, Director, Mining Department
World Bank-International Finance Corporation (WB/IFC)- Mr Luke Danielson, Director
Mining, Minerals & Sustainable Development Project (MMSD)
09:30 – 11:00 Sustainability – What does it Mean for Mining? Plenary I
- Sustainability and Economics – what does the future hold?Phillip Crowson
- Finance, Mining and Sustainability: an insider’s viewSimon Thompson, AngloAmerican
- Strengths and Weaknesses of the Mining Industry - InformationRequired by Investors
Aslak Skancke, Head Socially ResponsibleInvesting Research, Storebrand
- Financial Incentives for Improved SustainabilityMaryanne Grieg Gran, International Institute for Environmentand Development/MMSD
11:00 – 11:30 Coffee
11:30 – 13:00 Break-out groups to discuss Session 1 issues
13:00 – 14:30 Lunch
14:30 – 15:45 How Standards and Agreements are Used Plenary II
- How Standards and Agreements are Used in Audits and IndependentVerification
Mike Cambridge, Knight Piésold Consulting (UK)Lessons Learnt from governance structures of other industrial sectors:options for the mining sector
Ruth Nussbaum, ProForest- What financial institutions would find useful:
20
a Banker’s view of Codes, Standards Agreements and independent verificationMilo Carver, Associate Director, Barclays Capital
- Sustainability Indicators and Sustainability Performance ManagementProfessor Alyson Warhurst, Director, Mining & Energy Research Network,Warwick Business School
16:15 – 17:30 Break-out groups to discuss Session II issues
17:30 – 18:30 Summary of Day 1 – reporting back from break-out groups
19:00 Reception
15 January 2002
09:00 – 10:00 Challenges for Governments and Communities Plenary III
- A View of GovernmentsDr. Keith Brewer, Director General, Economic and Fiscal AnalysisBranch: Minerals and Metals, Natural Resources Canada
- Meaningful Partnerships with government and local communitiesLigia Noronha, Tata Energy Research Institute, India
10:00 – 10:30 Coffee
10:30 – 11:15 Break-out groups to discuss Session III issues
11:15 – 12:30 Plenary discussion
12:30 – 14:00 Lunch
14:00 – 15:30 Summary of Day 2 - report from break-out groups and generaldiscussion on Moving Ahead: What the Finance Sector needs from themining industry
15:30 – 16:00 Coffee
16:00 – 16:45 Closing Session
Plenary IVConclusions, Summary and Recommendations
21
Name Title OrganisationAhmid Merunisha Manager, Insurance Unit The World Bank Group/ IFCAloisi de Larderel Jacqueline Assistant Executive Director UNEPAlto James Vice President, Environment NorWest Mine ServicesAnderson Stephanie Assistant Treasurer,
Corporate FinanceInco Ltd.
Armstrong Clive Principal Economist, Oil, Gas& Chemicals
The World Bank Group/ IFC
Arnal Luis Assistant to the ExecutiveDirector
The World Bank Group
Baer Roger Mining Engineer, Div.ofCorp.Fin.
Securities & ExchangeCommission, USA
Balkau Fritz Head, Production &Consumption Branch
UNEP
Baquedano Manuel President Institute for Ecological PolicyBass Susan Director, Inter American
ProgramsEnvironmental Law Institute
Baxter Roger Chief Economist Chamber of Mines, SouthAfrica
Beaty Ross Chairman & CEO Pan American SilverCorporation
Benavides Roque CFO Compania de MinasBuenaventura
Bermeo Antonio Mining Advisor Ministry of Energy & Mines,Ecuador
Berney Richard Consultant, OperationsEvaluation Dept.
The World Bank Group
Blanchard John Vice President, SocialProducts
Calvert Asset ManagementCo. Inc.
Bocoum Brigitte Mining Engineer, PrivateSector Dev
African Development Bank
Bond James Director, Mining Department The World Bank Group/ IFCBorkey Peter Environment Mgt Team
CoordinatorOECD
Borlini Sabrina Investment Officer,Syndications
The World Bank Group/ IFC
Boulanger Aimee International ProgramCoordinator
Mineral Policy Center
Boulet Emmanuel Environmental Expert COFACEBrewer Keith Director General, Economic
& Financial BranchNatural Resources Canada
Brooksbank Simon Sustainability Advisor TVI Pacific, Inc.
Bruijn Wilfred Theodor CFO Mineracoes BrasilierasReunidas S.A.
Bruington Thomas Senior Mining Engineer The World Bank Group/ IFCBurke Tom Environmental Policy
AdvisorRio Tinto plc
Butler Tom Investment Officer The World Bank Group/ IFCCambridge Mike Knight Piésold Consulting
APPENDIX 3LIST OF ALL PARTICIPANTS
22
Cano Romero Kathia Responsible de Programma Programa de Mineria yComunidades
Carter Assheton Director, Energy & MiningIndustry Initiative
Conservation International
Carver Milo Associate Director Barclays CapitalCastro Francisco Counselor Embassy of MexicoChavout de BeaucheneXavier
International FinancialInstitutions
Embassy of France
Clamp Tony Senior Investment Officer,Mining Dept.
The World Bank Group/ IFC
Clements-Hunt Paul FI Coordinator UNEP ETUCochard Eric Senior Vice President,
MiningCredit Lyonnais
Cochrane Stanley Associate Director, RiskUnderwriting
Swiss Re New Market Corp.
Cofta Claudette Senior Director, Sustain.Develop.
American Chemistry Council
Cole-Baker John Director, UK CSA GroupColton David Senior Vice President &
General CounselPhelps Dodge
Connelly Richard SRK ConsultingCrowl William Principal Mining Geologist SRK ConsultingCrowson PhillipDa Sie Jan Manager, Credit & Risk
ManagementRoyal Bank of Canada
Dalupan Cecilia Research Associate University of Colorado inBoulder
Danielson Luke Project Director MMSD Int’l Institute for Environment& Development
Davis Wendell Specialist OPICDavy Aidan Director, Corporate Services Int’l Business Leaders Forum
De Sa Paolo Lead Industrial Economist,Mining Dept.
The World Bank Group/ IFC
D'Esposito Steve President Mineral Policy CenterDiliza Mzolisi Chief Executive Chamber of Mines, South
AfricaDonovan Laura Engagement Manager StorebrandDrajem Mark Trade Reporter BloombergDryland Hugo Managing Director NM Rothschild & SonsDunn Wayne President Wayne Dunn & Associates
Ltd.Eggleston Peter Group Coordinator for
Sust.Develop.Rio Tinto plc
Elbrecht Derrick Treasurer Nat.Union of MineworkersElliott Guy Head of Business Affairs Rio Tinto plcElton Bob CFO Eldorado GoldEpps Janet Senior Specialist, CAO The World Bank Group/ IFC
23
Espinoza Cesar Undersecretary of Mines Ministry of Energy & Mines,Ecuador
Evans Ray Executive Officer WMCFarrell James Specialist on Sust.
DevelopmentHatch Associates Ltd.
Ferreira Doneivan Researcher, Dept. Mineral &Energy Resources
UNICAMP
Fohlen Didier Senior EnvironmentalSpecialist
The World Bank Group/ IFC
Ganesan Arvind Director, Business & HumanRights
Human Rights Watch
Georgieva Kristalina Director, EnvironmentalDept.
The World Bank Group
Gilbert Maureen ABN AMROGlyde Phillip First Assistant Secretary Australian Ministry of
EnvironmentGodinot Sebastien Charge de mission Les Amis de la TerreGovender Gino Mining & Energey Officer ICEMGraff Richard Partner, US Mining Industry
LeaderPricewaterhouse Coopers
Grant-Suttie Francis Director, Private SectorInitiatives
World Wildlife Fund
Grieg Gran Maryanne Int’l Institute for Environment& Development
Groetschel Utz Deputy Member of Exec.Mgt Munich ReinsuranceCompany
Hair Jay Chair, Assurance Group MMSDHan Cao Adele Investment Officer, Mining
Dept.The World Bank Group/ IFC
Hasan Masud Environmental Engineer EXIM BankHimberg Harvey Director of Investment Policy OPICHodge Mike Managing Director Marsh Canada Ltd.Hodgkinson Lee Global Director, Mining
GroupKPMG
Hoffmann Daniel Director Swiss Re New Market Corp.Holden Gerard Managing Director, Global
Head of Mining & MetalsBarclays Capital
Hoskin Wanda Senior Programme Officer,Mining
UNEP
Huhtala Ari Senior Programme Officer,CP Financing
UNEP
Husband Charles Lead Mining Specialist The World Bank GroupJohnson Ian Vice President, Head of
NetworkThe World Bank Group
Joseph Ludwina Press Officer The World Bank Group/ IFCJoyce Susan Senior Social Scientist Golder Associates Inc.Kathol Doug Senior Vice President NorWest Mine Services Inc.Kawada Makoto Investment Officer,
SyndicationsThe World Bank Group/ IFC
24
Kieser Nigel Business DevelopmentExecutive
Rio Tinto
Kikuchi Yo Representative Japanese Bank for Int'lCooperation
Kohl Kaufman Elleen Executive Director Social AccountabilityInternational
Kunanayagam Ramanie Senior Mining Specialist,Mining Dept.
The World Bank Group/ IFC
Kuper Kate Investment Officer, MiningDept.
The World Bank Group/ IFC
Lallement Dominique PM, Energy SectorManagement
The World Bank Group
Lazarus Suellen Director, Syndications & Int'lSecurities
The World Bank Group/ IFC
Levi Arthur Representant Special, Europe Societe FinanciereInternationale
Levi Barbara Senior Vice President,Business Development
Credit Lyonnais, Paris
Lietard Phillippe Managing Director, GlobalMineral Resources
UBS
Lister Douglas Principle Investment Officer,Mining Dept.
The World Bank Group/ IFC
Lombe Wilfred Director Minerals & Energy PolicyCentre
Lowe Letitia Manager, Financial MarketsUnit
The World Bank Group/ IFC
Lucas Frank Managing Director Loeb Aron & CompanyMaechler Andreas Risk Engineering Services Swiss ReMans Darius Country Director, Africa
RegionThe World Bank Group
Maraboli Leo Senior Mining Engineer The World Bank GroupMartin Paul CFO Gabriel Resources Ltd.Mays Shaun Joint Managing Director Westpac Financial ServicesMboniso Welcome Production:
Pillar HeadNat. Union of Mineworkers
McCurdy Karr Managing Director, GlobalMining & Metals
Citibank, N.A.
McLennan Rex Executive Vice President &CFO
Placer Dome Inc.
McPhail Kathryn Senior Social Scientist The World Bank GroupMcShane Frank Coordinator of Stakeholder
EngagementInt’l Institute for Environmt& Developmt
Middleton John Senior EnvironmentalSpecialist
The World Bank Group/ IFC
Miller Shawn Program Officer, CorporateRelations Dept.
The World Bank Group/ IFC
Mirabal Carlos Vice President, Operations Compania Minera del SurS.A.
25
Mlambo Ngcuka Phumzile Minister of Minerals &Energy
Department of Minerals &Energy, South Africa
Morris Julian Director, IEA Environment &Tech.Programme
Institute of Economic Affairs
Mourer Crecencia Associate World Resources InstituteMulligan William Political Risk, AIU Insurance AIGMurray Gavin Director, Environmental
DivisionThe World Bank Group/ IFC
Nash Gary Secretary General ICMENazari Mehrdad Principal Environmental
SpecialistEBRD
Nicholls Graham Vice President, ExternalAffairs
BHP Diamonds
Nitschke Jork AVP, Technical RiskOperation
American Re-InsuranceCompany
Noronha Ligia Senior Fellow TATA Energy ResearchInstitute, India
Nussbaum Ruth ProForestO'Keefe Joseph Manager, Corporate Relations The World Bank Group/ IFCPeachey Mike Managing Director Indecs Ltd.Pearce David Senior Mining Engineer SRK ConsultingPeeling Gordon President & CEO Mining Association of
CanadaPercival Robert Environmental Law Program University of MarylandPincheira Pablo Head of Planning Ministry of Mines, ChilePrickett Glenn Vice President,
Environmental LeadershipConservation International
Rechatin Cecile COFACERemy Felix Principal Mining Specialist The World Bank GroupRhodes Theresa Senior Director CARERicks Geoff Director, SRK (U.K.) SRK ConsultingRivas Jorge Guarantee Officer MIGARodier David Senior Vice President,
Environment, Safety,HealthNoranda
Roland Damian Mines Officer ICEMRondon Glevis Project Director Latin American Mining
Monitoring ProgrammeRyan Heather Program Manager, Domestic
ProgramsCarr Center for HumanRights Policy
Saha Anita Director FITCHSandbrook Richard Project Coordinator MMSDSchoenfeld Joachim Head, Global Project Finance,
South AmericaHypoVereinsbank
Schori Anton Sen. Environm. Specialist NorWest Mine ServicesSeligmann Peter CEO Conservation InternationalShafik Nemat Vice President, Private Sector
Dev.&InfrastructureThe World Bank Group
Sheahan Bernard Senior Manager, OperationalStrategy
The World Bank Group/ IFC
Sheldon Christopher Mining Specialist The World Bank Group
26
Simon Alain Federation Nationale MinesEnergie
Skancke Aslak Sen. Environm. Analyst StorebrandSlack Keith Policy Advisor Oxfam AmericaSrinivasan Subbiah Vice President, Internat. Met-ChemStevens Natalie Anne Mining Tax Lawyer The World Bank GroupStrongman John Mining Adviser The World Bank GroupStufsky Jeff Managing Director, Project
Finance, MiningDeutsche Bank
Taufique Azmat Manager, Mining Dept. The World Bank Group/ IFCTaylor Matthew Manager, Sust. Develop.
EuropeBHP Billiton
Taylor Meg Compliance Advisor/Ombudsman
The World Bank Group/ IFC
Thompson Richard Director MJRS Ltd.Thompson Simon Chief Executive Anglo Base MetalsThomson Ian Member, Board of Directors Prospectors & Developers
Assoc.of CanadaToledo Fernando Studies Unit CODELCOTourreilles Francisco Director, Power Dept. The World Bank Group/ IFCTshabalala Nobahle Deputy Director Department of Minerals &
Energy, South AfricaUshijima Yoshiaki Senior Representative Japan Bank for Int’l
CorporationValencia Alfredo Minister Counselor
(Economic)Embassy of Peru
Van der Veen Peter Manager, Mining Dept. The World Bank GroupVan Veldhuizen Harvey Lead Environmental
SpecialistMIGA
Velasquez Juan Research Fellow MMSDWalser Gotthard Senior Mining Specialist The World Bank GroupWard Robert ABN AMROWarhurst Alyson Professor Warwick Business SchoolWeber-Fahr Monika Sen. Economist, Mining
Dept.Int’l Finance Corporation
Whittaker Martin Managing Director InnovestWicks Clive Senior Fellow World Wildlife FundWilson John Principal Investment Officer,
Mining Dept.The World Bank Group/ IFC
Wiss Marcia Partner Hogan & Hartson LLP
Woicke Peter Managing Director, WBG &Executive VP
The World Bank Group
Wolfensohn James President The World Bank GroupZemek Andrew Consultant ZemekZisch Bill Director, Business Planning Newmont Mining
Corporation
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United Nations Environment ProgrammeDivision of Technology, Industry and Economics, UNEP DTIE
About UNEPUNEP’s mission is to provide leadership and encourage partnership in caring for theenvironment by inspiring, informing, and enabling nations and peoples to improve theirquality of life without compromising that of future generations. UNEP works closelywith stakeholders to provide a common informationand knowledge base which assists government and industry in making environmentallysound decisions.
About UNEP Finance Initiatives:UNEP’s mission, in the field of finance and the environment, is to enhance thecapacities of banks, insurers and re-insurers, pension funds and investment firms,intermediaries, and the financial services sector as a whole, in integratingenvironmental and sustainability considerations into all their policies and businessoperations.
Mining, Minerals and Sustainable Development Project
About Mining, Minerals and Sustainable Development (MMSD) Project:The Mining, Minerals and Sustainable Development (MMSD) Project is anindependent two-year participatory process with the objective of “identifyinghow mining and minerals can best contribute to the global transition to sustainabledevelopment”. The Project is designed to produce a Project Report due in March 2002which will be available in draft form in mid-Dec 2001 for stakeholder consultation andinput.
The World Bank
About The World BankThe World The World Bank Group’s Mining Department is committed to work with its clients to
promote a vibrant mining sector in developing countries, based on a vision of a miningsector that, by attracting private investments, creates a foundation for economic andsocial well-being. To improve the effectiveness and reach of its activities in the miningsector, the World Bank Group has combined IBRD/ IDA and IFC operations in thesector into a single global Mining Department, whose objective is to supportgovernments in the responsible development of their countries’ mineral resources. TheMining Department also works with private sector investors to promote mineralsinvestments that are socially and environmentally sound, and that support lastingeconomic impact in the region or country concerned.
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